Business

Study: Net loss to U.S. ag from USMCA

Though the new United State-Mexico-Canada Agreement, or USMCA, will increase U.S. dairy and poultry exports to Canada, the gain may be more than offset by retaliatory tariffs, a new study shows.

The projected $450 million gain in dairy and poultry exports will be accompanied by retaliatory measures by Canada and Mexico that could cause U.S. ag exports to decline by $1.8 billion, according to the study released Oct. 31.

What's more, continued retaliatory tariffs by China and other trading partners could create a $7.9 billion overall decline in U.S. ag exports, the report said.

The report, commissioned by the Farm Foundation, an agricultural policy institute that describes its mission as working "to meet society's need for food, fiber, feed and energy, was conducted by Purdue University ag economists Dominique van der Mensbrugghe, Wallace Tyner and Maksym Chepeliev.

The analysis had three components: the impact of USMCA on U.S. ag; the impacts of the retaliatory tariffs imposed by Mexico and Canada, and the rest of the world, in response to U.S.-imposed tariffs; and estimates of what would happen if the U.S. withdrew completely from the North American Free Trade Agreement.

Though the USMCA was reached on Oct. 1, the U.S., Canada and Mexico all must ratify it.

The new report contains both praise and concern for the the USMCA.

The agreement "should bring a sigh of relief to U.S. farmers. It largely maintains the relatively free market across the three countries, particularly in agriculture. It improves market access for U.S. dairy and poultry exports toward Canada," the report says.

On other other hand, "the new agreement, when implemented, is occuring in a new and volatile trade policy environment for U.S. farmers," with China's 25-percent increase on its tariff on U.S. a notable example," the report says.

The USMCA — known by some as NAFTA 2.0 — will replace the former North American Free Trade Agreement, or NAFTA. The report notes that, "In the 25 years since NAFTA was formed, the share of U.S. agricultural exports to Canada and Mexico has increased to almost 30 percent, from 14.2 percent."

Though the new agreement could cause economic pain to ag if implemented, failure to replace NAFTA would be be more painful, according to the report.

The report says: "It could be worse. The USMCA may fail to be ratified. One plausible outcome of a failure to ratify the new agreement would be for the United States to withdraw from the original agreement, in which all all three countries could revert tariff rates to the so-called most favored nation (MFN) status, granted to all countries that are members of the World Trade Organization. MFN tariff levels would hit U.S. agricultural exports particularly hard. One study concluded that U.S. agricultural exports would decline by more than $9 billion, and lead to higher consumer prices for food."

Nonetheless, the Trump administration had reversed "the decades-long commitment toward freer trade" and that's led to retaliatory tariffs which are hurting U.S. agriculture, the report says.